A recent decision from the Supreme Court of Canada provides helpful clarification on the common law test for constructive dismissal, and also provides guidance into when the suspension of a non-unionized employee will constitute a repudiation of the contract of employment.

In Potter v. New Brunswick Legal Aid Services, 2015 SCC 10 (CanLII), the plaintiff was the former executive director of Legal Aid New Brunswick. The terms of his employment were defined, in part, by the province’s Legal Aid Act. The statute also granted authority to the Board of Directors of the New Brunswick Legal Aid Commission to manage the employment relationship. After four years of employment, the plaintiff went on an extended medical leave of absence. Prior to the commencement of the leave, the parties had been negotiating a deal that would have resulted in the plaintiff resigning from his position in exchange for a separation payment. When negotiations stalled, the Board of Directors informed the plaintiff that he was being placed on a paid suspension. Unbeknownst to the plaintiff, the Board of Directors also sought to have him dismissed for cause on the basis of a number of allegations including the mismanagement of public funds. After eight weeks on paid suspension, the plaintiff brought an action alleging constructive dismissal. Upon receipt of the claim, the Board of Directors stopped the plaintiff’s salary and benefits and took the position that the plaintiff had resigned from his employment.

The trial court and the New Brunswick Court of Appeal both found that the suspension of the plaintiff did not amount to a constructive dismissal; rather, the lower courts held that the Board of Directors was within its rights to suspend the plaintiff. The lower courts also found that it was the plaintiff’s allegation of wrongful dismissal that constituted a repudiation of the employment contract.

Writing for the majority, Justice Wagner overturned the decisions of both lower courts. In doing so, the Supreme Court of Canada provided insight into when a constructive dismissal will arise and under what circumstances an employer is able to place an employee on an administrative suspension without being found to have repudiated the employment relationship.

Justice Wagner clarified that the test for constructive dismissal has two steps. The first step is to determine if an express or implied term of the employment contract has been breached by the employer. A breach can occur when there has been a single unilateral act that is contrary to an essential term of the employment contract, or when there has been a series of acts that are demonstrative of an intention to no longer be bound by the employment contract. The second step in the test requires an analysis of whether a reasonable person in the same situation as the employee would have felt that the essential terms of the employment contract were being substantially changed.

With respect to whether an administrative suspension could amount to constructive dismissal, Justice Wagner held that unless there is an express power granted within the contract of employment, the authority to place an employee on an administrative suspension is subject to the condition that the suspension be reasonable and justified. The factors that may be considered when determining if an administrative suspension is reasonable and justified are non-specific, and depend on the nature and circumstances of the suspension. However, an administrative suspension will not be found to be justified without a minimum level of communication to the employee with respect to the reason for the suspension and without a legitimate business reason for requiring that the employee refrain from attending work.

Justice Wagner held that an administrative suspension that is not authorized by the contract and not demonstrated to be reasonable and justified will almost always result in a finding that there has been a substantial change to the contract of employment that amounts to a constructive dismissal.

With respect to the burden of proof, the Supreme Court of Canada held that in most cases where constructive dismissal is alleged, the employee must first demonstrate that there has been a breach of the employment contract. However, once it has been established that there has been an administrative suspension, the burden of proof will shift to the employer to show that the suspension was reasonable or justified.

With respect to the plaintiff’s allegation of constructive dismissal, the Court found that the administrative suspension issued by the Board of Directors was neither reasonable nor justified because it was of an indefinite nature and the plaintiff was given no reason for the suspension.

Based on the foregoing, employers in Canada must ensure that they act in a reasonable and justified manner when issuing an administrative suspension to a non-unionized employee. To meet this test, employers should communicate the rationale for the suspension, have a legitimate business reason for taking the action, and should take steps to minimize the duration of the suspension to the extent possible. Employers should also avoid taking other steps that suggest an intention to terminate the employment relationship, such as cutting the employee’s pay and benefits.